Jan 31, 2017

Arbor Quantitative Analytics reports that the 30-year Treasury bond delivered a 10% return in the 10 days ended last week, among the best such sprints on record (it was in the 99.5th percentile). Tuesday's Financial Times reported a drop in 10-year gilt yields to 0.71%, far below any yield recorded even when the pound was convertible into gold at a fixed price. "Across the world," the paper said, "government bond yields continue to collapse as economists forecast low global growth and greater stimulus from central banks in spite of years of monetary easing. Dutch benchmark 10-year rates are now negative, joining those of Japan, Germany and Switzerland." According to Bank of America Merrill Lynch, $13 trillion of bonds are priced with negative yields, up from just about none two years ago.

If practice makes perfect, Grant's is unrivaled in calling the top in bond prices. We have done so repeatedly over the course of many years, even if not lately; since 2014, our line has rather been "one last gasp" for the bulls. We now say that the last gasp has been gulped. With all the fluency that comes with study and repetition, we say that sovereign debt is the biggest bubble since the Bronze Age, or maybe since ancient Sumer. The notion that negative-yielding bonds, denominated in a fiat currency, are a "safe" asset is a misconception that belongs in the next edition of Extraordinary Popular Delusions and the Madness of Crowds. We are bearish on bonds, especially the ones that, like new cars on a dealer's lot, positively guarantee the owner a loss as soon as he takes possession of his property.

We’re flooding people with information. We need to
feed it through a processor. A human must turn information into
intelligence or knowledge. We’ve tended to forget that no computer will
ever ask a new question.

Jan 11, 2017

White lies may be every bit as destructive as black ones. A government that withholds essential information from its people by censorship is no more democratic than one that speaks falsely... Indeed, because it may seem less reprehensible, the withholding of essential information is the most common form of lying, and because it may be the more difficult to detect and confront, it is often even more pernicious than black-lying.

White-lying is considered socially acceptable in many of our relationships because "we don't want to hurt peoples' feelings. Yet we may bemoan the fact that our social relationships are generally superficial. For parents to feed their children a pap of white lies is not only considered acceptable but is thought to be loving and beneficent... Usually such withholding and lack of openness is rationalized on the basis of a loving desire to protect and shield their children from unnecessary worries... The result, then, is not protection but deprivation. The children are deprived of the knowledge they might gain about money, illness, drugs, sex, marriage, their parents, their grandparents and people in general... Finally, they are deprived of role models of openness and honesty, and are provided instead with role models of partial honesty, incomplete openness and limited courage.

A life of total dedication to the truth also means a life of willingness to be personally challenged. The only way that we can be certain that our map of reality is valid is to expose it to the criticism and challenge of other map-makers. Otherwise we live in a closed system - within a bell jar, to use Sylvia Plath's analogy, rebreathing only our own fetid air, more and more subject to delusion.

We must always hold truth, as best we can determine it, to be more important, more vital to our self-interest, than our comfort. Conversely, we must always consider our personal discomfort relatively unimportant and, indeed, even welcome it in the service of the search for truth. Mental health is an ongoing process of dedication to reality at all costs.

Our view of reality is like a map with which to negotiate the terrain of life. If the map is true and accurate, we will generally know where we are, and if we have decided where we want to go, we will generally know how to get there. If the map is false and inaccurate, we generally will be lost. (p. 44)

[...]

By the end of middle age people have given up the effort. They feel certain that their maps are complete and their Weltanschauug is correct (indeed, even sacrosanct), and they are no longer interested in new information. It is as if they are tired. Only a relative and fortunate few continue until the moment of death exploring the mystery of reality, ever enlarging and refining their understanding of the world and what is true. (p. 45)

[...]

Rather than try to change the map, an individual may try to destroy the new reality. Sadly, such a person may expend much more energy ultimately in defending an outmoded view of the world than would have been required to revise and correct it in the first place. (p. 46)

Jan 9, 2017

The fall of Rome was not a tragic setback; had the empire prevailed, there would be nothing to call Western Civilization. If Rome still ruled, Europe would be mired in a brutal command economy, there would have been very little innovation of any kind, and the rest of the world probably would be much as Europeans found it in the fifteenth and sixteenth centuries. Empires are the enemies of progress!